Before you go shopping for a car, you should seriously consider pre-approved car loans. Once you are pre-approved, you will be in a lot stronger negotiating position when you show up at a car dealership with a lender-approved coupon or blank check. You can get pre-approved for a car loan from online lenders, banks or credit unions. The following are 4 advantages to getting pre-approved for a car loan.
1. Receive a better interest rate
It can be convenient to get dealer financing. However, if you don’t do some comparison shopping, a dealer finance manager may try taking advantage of this fact and increase the interest rate on your car loan. When you get pre-approved for a loan, then you will know you received the best possible interest rate that you qualified for.
2. Set an affordable and realistic budget
After you have been pre-approved for a certain interest rate and loan amount, you will be able to set up a realistic budget for what you can afford to pay for a car. Utilize a car loan calculator, and add in other factors like trade-in amount and down payment. Then add on an extra 10% for other fees and sales tax. Make sure to factor in the cost of insurance and other expenses that come with car ownership.
3. Simplify your car dealership experience
Another advantage in having your financing already set up is the dealer will view you as a cash purchaser. In other words, you will be seen as a person who has money in hand who has the ability to walk away at any time from the negotiations. This provides you with a lot of leverage.
4. Ability to negotiate more effectively
Whenever you are able to bring a pre-approved coupon or check from your lender with you to a car dealership, you can see if the dealer can provide you with a better interest rate. Frequently, dealers have relationships with captive lenders and are able to provide cheaper financing that way. Captive lenders are banks that car companies set up to make car loans. It is worth the time to fill a loan application out at the dealership to find out what kind of special incentives and deals you may qualify for, particularly if you have good credit.
Now that you understand what some of the advantages are to getting pre-approved for a car loan, you can start on the process of qualifying for a loan. Contacting your credit union or bank is a good place to start. Or check out online lenders who offer car loans.